Two Main Conditions for Collapse of the Bubble Economy of China—Large Number of Unsold Houses and Deregulation of Deposit Interest Rates

Abstract

There are two kinds of asset bubble in China, and they are formed through these two assets, real estate assets and financial assets. Most studies looking into China’s economy said that the Chinese bubble will collapse soon. Majority of these studies, however, provide unclear reasons. In addition, they emphasize mostly on the bubble as the reason of the predicted collapse. Data gathered through fieldwork concerning real estate developers, non-banking companies, normal banks, local governments, and various housing construction sites in three cities of China and through analyses of literature, this paper studied two kinds of asset bubbles which are developing in China. And this research done through the fieldwork is insisted on that the bubble economy of China will not collapse easily. But when some conditions occur, the bubble economy will collapse. One of the conditions of the collapse is the number of unsold houses keeps increasing further. Many developers are facing financing problems. If the number of bankrupt developers increases, the bubble will collapse. Another important condition is that the deregulation of the deposit interest rate by PCB. Therefore, the most important thing is the authorities involved must strengthen the management ability of developers. In addition, the policy measure used to mitigate the deposit interest rates policy and its impact.